Dividend Policys of Companies Essay Example | Topics and Well Written Essays - 1250 words

Dividend Policys of Companies - Essay Example Companies which are in stages of growth or in initial stages normally have a sparing dividend policy because they reinvest or plow back much of their earnings into the company to experience growth and development (Financial Dictionary 2011). Established companies such as blue chips, Unilever and Wal-Mart being some of them, are inclined to relatively liberal dividend payout policies and grant dividends regularly on quarterly or half-yearly basis. For instance, Unilever (bearing a symbol of UL and listed on NYSE) pays a regular dividend every quarter; the most recent payout has been an amount of US$ 0.307 on November 8, 2011. Similarly, Wal-Mart paid a quarterly dividend of US$ 0.365 recently on December 07, 2011; a payment every quarter is being followed by the company. Dividends payment do assure shareholder satisfaction but some research, particularly Modigliani and Miller (MM)’s proposition on irrelevance depicts that a company’s performance and profitability is not affected by its dividend policy. Talking from the shareholder perspective, shareholders are more satisfied when they receive regular flows of dividends, even in small amounts but the factor of regularity ensures their confidence in the company. An irregular or erratic pattern of dividend payouts can lead to bad image for the company and thus an adverse effect on its share in the market. Considering potential investors and their attitude towards a company’s dividend payment patterns or dividend policy, people, according to their stage of investment that is their age, invest accordingly. In the case of stocks, younger or aggressive risk taker individuals invest in growth stocks or stocks that induce capital gains rather than a stream of dividends. Investors in retirement stages or in the later faction of their lives invest in less risky income stocks which payout dividends on a continuous basis forming a regular fixed income. Mini Case – Topic: Dividend Policy Company Na me: Wal-Mart Stores Inc. Description Wal-Mart was founded in the year 1962, with the inauguration of the first Wal-Mart discount store in Rogers, Ark. The company became public as Wal-Mart Stores Inc. on October 31, 1969 and its shares began trading on OTC (Over The Trading) markets in 1970 and were listed on NYSE (New York Stock Exchange) two years later in 1972. The first dividend was declared on March 26, 1974. Wal-Mart Stores Inc. is the 18th largest publicly listed company according to The Forbes 2010 list of Global 2000 big publicly listed companies (The Forbes 2011). The company caters to customers and members more than 200 million times weekly at retail units more than 9,880 under 60 different banners in more than 28 countries. With the world’s highest sales revenue of US$ 405 billion, it employs more than 2 million employees worldwide. Dividend Policy of Wal-Mart Stores Inc Before discussing about Wal-Mart’s dividend policy, its payout history has to be taken into account; the table below depicts the same: Dividend Payment History – Wal-Mart Stores Inc Year 2010 2009 2008 Dividend Per Share* (DPS) (In US$) 1.09 0.95 0.88 Total Dividend (In US$ million) 4,217 3,746 3,586 Dividend Yield (IN US$) 2.1% 1.9% 2.1% *These dividends are paid in four portions on a quarterly basis such as US$0.3025 paid on January 31, 2011. The above table depicts the